On Friday the focus for the Forex market was on the release of the US Retail Sales report as traders were waiting for a further confirmation that the domestic economy was on course for a higher rate policy. Analysts were expecting the consumer report to print significantly higher showing that the progress in the economy has spurred consumer demand higher but that wasn’t the case.
The report did show strong consumer demand but didn’t print at the levels that it was previously expected and the Dollar didn’t get the support everyone expected. Now the question becomes whether this report casts any doubts on whether the Fed will continue on course and hike rates soon. We believe that even though the report didn’t confirm analysts’ expectations it didn’t hurt Dollar’s outlook especially since the figures weren’t bad, just not as exciting as previously eyed.
The Dollar will be in the focus this week as the release of the inflation levels from across the Atlantic and the minutes from the last FOMC meeting will provide important insight on what policymakers are thinking. We’re not 100% convinced that the Fed will pull the trigger on December but in terms of what the market thinks we believe that the Dollar could get another round of demand this week on the back of the expected reports, as long as they don’t surprise in a bearish manner.
Taking a look at the price action in the major currencies we monitor every day, the Euro traded lower on Friday even though the US Retail Sales misses their mark. This confirms that the bias remains bearish as the Euro tested the 1.0700 level as soon as the Asian markets opened on Sunday and this is an important level to be reckoned with.
A clear break of the 1.0700 level and the previous lows of last week will clear the path for significantly lower levels with the 1.0500 area being the medium-term target. For that to take place of course a number of US-related reports need to print strong and increase demand for Dollars as we move closer to the December rate decision. Today the release of the Eurozone inflation levels could provide some friction but we expect more price action as we move further down the week.
The Cable remained pretty much unchanged on Friday having entered a consolidation formation since last week. The UK currency has been receiving support ahead of the 1.5200 level and as long as it remains trading above this the outlook is bullish for the short term. Price action in the Cable is expected to pick up tomorrow with the release of the inflation levels from the UK and if the report prints higher as expected we could see the Pound rallying towards the 1.5300 area which is the short-term target for the time being.
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